Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
In an earlier article we discussed how the 2012 Consumer Electronics Show had a highly visible new presence from the major automakers this year, and how this revealed their strategy to defend the in car infotainment market opportunity by re-inventing themselves as technology firms, and providing improved in car infotainment solutions. Today, we’ll look at the next natural step for the carmakers, which is to establish a beach-head in the global hotbed of telecom and technology innovation, Silicon Valley.
At CES, Alan Mulally, CEO of Ford, talked about the integration of CE and auto design.
“The automobile is the all-time mobile application”, said Mulally. Ford has been early to make the shift, and Mulally surprised many when in his 2009 CES keynote he said, “We are a car company, but we are working to think and act like a technology company.”
Dieter Zetsche, Chairman of Daimler AG and the Mercedes brand, said, “Just like a smartphone can be so much more than a means of communication, a smart car can be so much more than just a mode of transportation.” The direction the carmakers are going is not unique, it is a mass migration. Instead of trying to be fully vertically integrated, and do research and development from within, they are shifting to best-of-breed solutions, and seeking partnerships on the outside.
This kind of change is deeply disruptive, and usually comes with a good amount of culturally-induced friction. It takes years, and particularly strong management to overcome a bad case of “not-invented-here” syndrome. But if the telcos can get over it, so can Detroit. The first step is admitting there is a problem, and the carmakers are well beyond this point – the entry of the smartphone, and the way that a $500 device can often surpass the $2,000 in car systems made that clear. The second step is asking for help, and so carmakers are setting up shop in California to connect with tech giants and innovators.
Ford is a good case in point. In 2011, they announced that early this year they would open an R&D lab in Silicon Valley to focus on consumer technology, open source, connected cars, inter-connected cars and mobile innovations. The lab will rotate staff from Dearborn, Mich., as well as hire locally. Ford will seek partnerships with inventors, entrepreneurs and other labs. Ford CTO Paul Mascarenas said, “This is a very natural extension into one of the most innovative communities in the world,” adding that the lab is intended to absorb some of the Silicon Valley culture of risk-taking and pushing boundaries.
The announcement by Ford is actually not unique, but rather they are the most recent arrival. In fact, the past decade has seen accelerating interest by automakers on capturing the best ideas out of the tech hotbed. Volkswagen and BMW have had R&D offices for years. Tesla Motors is based in Silicon Valley to build their all-electric cars. But the past year has seen an acceleration, with local offices opened by all of Nissan, Renault, Ford, General Motors and Mercedes. Also, car parts suppliers such as Bosch also have R&D in the Bay Area.
What’s happening to the car industry is a very close analogy to what happened in telecoms a decade earlier. The telcos formerly did their own R&D, but had cut budgets. Meanwhile, Silicon Valley technology was starting to route around and over-the-top of the telco networks. Solutions like voice over Internet Protocol, mobile TV, mobile e-mail and Palm Pilots were beating out slower and less inviting telco offerings. Slowly, the telcos opened their doors to innovation and partnerships, and through a decade set up shop in the San Francisco Bay Area. Today, there are over 25 global telcos in Silicon Valley, actively engaging entrepreneurs and tech companies. There are fewer carmakers in the world, but they seem to be on the same path.
Speaking, for one paragraph, on behalf of Silicon Valley, we are honored to be regarded as a hub of technology excellence, and we welcome the increased presence of Ford and all the global car brands. Most of us people working here, like the car brands, were ourselves attracted at one time by the rich climate of innovation, dynamic business culture and the opportunity to start something big. Keep on coming. The community will organize around you and the net result will be increased opportunities for both sides.
Liz Kerton, analyst for The Kerton Group and president of the Telecom Council of Silicon Valley, follows innovation across all telecom sectors.
